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PETITIONER: UNION OF INDIA

       Vs.

RESPONDENT: CITY MUNICIPAL COUNCIL, BELLARY

DATE OF JUDGMENT08/09/1978

BENCH: UNTWALIA, N.L. BENCH: UNTWALIA, N.L. CHANDRACHUD, Y.V. ((CJ) SARKARIA, RANJIT SINGH REDDY, O. CHINNAPPA (J) SEN, A.P. (J)

CITATION:  1978 AIR 1803            1979 SCR  (1) 573

ACT:      Constitutions of India, 1950 Article 285-Scope of "that State ’ and that tax ’ meaning of- bellary Municipal Council levied tax  on railway  property-Railway  then  owned  by  a private company-On  nationalisation railway  property became government Property.  District which  was  formerly  in  the State of  Madras transferred  to Mysore  to Mysore  in 1953- Municipal  Council,   if  could  continue  to  Levy  tax  on government owned property under Art. 285(l)-No law passed by Parliament  similar   to  the  Railways  (Local  Authorities Taxation) Act, 1941 affecting exemption of property of Union from all taxes imposed by local authorities in a State-1941- Act if repugnant to Art. 285.

HEADNOTE:        By virtue of a notification dated 14th February, 1929 issued under  s. 135  of the  Indian Railways Act, 1890, the Bellary Municipal  Council  levied  and  realised  municipal taxes in  respect of  railway property  owned by  the former Madras &  Southern Mahratta  Railway Co.,  which was  a non- government company.  The  Municipal  Council  was  realising taxes  from  the  railway  in  accordance  with  the  Madras District Municipalities Act, l92O, when the railways came to be owned by the Government of India, it was found that there was no  provision under  the Government  of India Act, 1935, creating liability  of the  government railway  to  pay  any municipal texes  and that therefore no tax could be realised by the  municipal councils.  In 1941,  the  Railways  (Local Authorities  Taxation)   Act,  1941,   was  passed.   By  a, notification  issued  under  s.  4  of  the  1941  Act.  the Government of  India revoked  the  notification  dated  14th February, 1929  and issued in its place a fresh notification dated 18th  June, 1946  declaring that the administration of the Madras  & Southern  Mahratta Railway  shall be liable to pay taxes  to the  Bellary Municipal  Council.  the  Railway continued to pay the tax until 1953.       The Bellary district, which was formerly a part of the Madras State  was added to the State of Mysore under s. 4 of the Andhra State Act, 1953. Even after Bellary became a part of the  State of  Mysore, the Madras District Municipalities

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Act, 1920  continued to  be applicable  to the  Bellary area till October,  1955  when  the  Mysore  Laws  (Extension  to Bellary and  Amendment) Act,  1955 extended the operation of the Mysore State Municipalities Act, 1933 to the District of Bellary. Upto (October, 1955, the Southern Railway which was the successor-in-interest  of the  Government owned Madras & Southern Mahratta  Railway did  not dispute its liability to pay municipal taxes. The Government then raised a contention that the Government owned railway property was not liable to tax by  any local  authority in  view of  Article 285 of the Constitution and stopped payment.        The Municipal Council thereupon filed a suit claiming from the  railway a large amount as arrears of tax. The High Court. under  Article 228  of the Constitution. withdrew the suit from  the Bellary Court and passed a decree against the Union. 574        In  appeal to  this Court  it was  contended for  the Municipality that  (1) the  levy of  tax was saved by clause (Z) of Article 285 and (2) clause (1) of Article 285 was not a bar  in the  way of  imposing the tax in question, because the  194l   Act  was   saved  under   Article  372   of  the Constitution.      Allowing the appeal, ^      HELD: 1. The property of the Railway is exempt from all taxes claimed by the Bellary Municipal Colonial under clause (1) of  Article 285  unless the  claim can  be supported and sustained under clause (2) [580 Al        The  property of  the Union  is exempt from all taxes imposed by  a State  or by any authority within a State. But the Parliament may by law provide otherwise and then any tax on the  property OF  the Union  can be imposed in accordance with the said law. The exception carved oui by clause (2) is not meant  for levying any tax on such property by any State but is merely for the benefit of any authority including the local authority  like the  Municipal  Council  in  question. Clause (  I ) cannot prevent such authority from levying any tax on  any property  of the  Union  if  such  property  was expiable to  such tax immediately before the commencement of the Constitution.  The local authority can reap advantage of this exception only under two conditions namely, (i) that it is "that  tax" which  is being continued to be levied and no other; (ii)  that the  local authority  in ’that  state"  is claiming to  continue the  levy of  the tax. In other words, the nature, type and the property on which the tax wa6 being levied pourboire  to the  commencement of  the  Constitution must be  the same  as also  the local  authority must be the local authority  of the  same State  to  which  it  belonged before the  commencement of the Constitution. On fulfillment of these two conditions, it is authorized to levy the tax on the Union  property under  clause (2).  As in  the  case  of clause (1),  it lies  within the  power of the Parliament to make a  law withdrawing,  the exemption of the imposition of the tax  on the  property of  the Union,  so in  the case of clause (2)  it is open to Parliament to enact a law and take away the  right of  The local  authority within  a State  to claim any  tax on  only property  of the  Union, a  right it derived. under clause (2). [578 E-579 Bl       2. (a) The plain and Simple meaning which must must be culled out  from the  expression "that State" in the context of the  other phraseology  in clause  (2) of  Article 285 is that the  local authority  can claim protection under clause (2) if  it is  a, local authority in the same Slate in which it was  before the  advent of  the Constitution  There is no

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ambiguity in this matter and there is, there fore. no escape from the  position that the Bellary Municipal Council in the city of Bellary which was a local authority within the State of Madras  cannot take advantage of clause (2) on the ground that  at   the  time  when  it  was  making  the  claim  for realization of the tax it was part of the Mysore State. [581 A-C]        (b) The mere fact that there is some variation in the amounts of  the tax  as payable  by the  Railway in the pre- Constitution and  post Constitution periods will not rob the tax of  being  the  same  tax  within  the  meaning  of  the expression "that  tax", within in clause (2) of Article 285. [580 B]       (c) The fact that the tax was being levied and claimed previously under the Madras Act of 1920 and now the claim is founded upon  the Mysore  Act of 1933 will not make it a tax different from  "that tax"  within the meaning of clause (2) of Article 285. [580 F] 575        Town  Municipal  Committee,  Amravati  v.  Ramchandra Vasudeo Clumote and Another [1964]6 SCR 947 referred to.      Governor-General of  India in Council v. Corporation of Calcutta AIR  1948 Calcutta  116 and  Union of India through General Manager E.I. Railway v. Municipal Board,Lacknow, AIR l957 All. 452 approved.

JUDGMENT:        CIVIL APPELLATE JURISDICTION Civil Appeal No. 2635 of 1969.        From  the Judgment  and order  dated 16-1-1969 of the Mysore High Court in Original Suit No. 1 of 1969.      P. N. Lekhi and Girish Chandra for the Appellants.        .  K. S.  Ramamurthy  and  S.  Balakrishnan  for  the Respondent.      The Judgment of the Court was delivered by        UNTWALIA  J.-A substantial  question of law as to the interpretation of  Article 285  of the Constitution of India is involved  in this  appeal by  certificate granted  by the Mysore High Court (now the Karnataka High Court).        The  City Municipal  Council, Bellary  field  a  suit against the  Union of India as owner of the Southern Railway in the Court at Bellary for ;1 decree fol the arrears of all tax etc. amounting to Rs. 38,988/-The claim ill the suit was on account  of Municipal  taxes due  in respect  of  certain buildings and  land owned  by the  said Railway  within  the Municipal limits  of Bellary. It was for the period April 1. 1957 to  March 31, 1963. Since the Union of India denied its liability to pay any tax to the Municipal Council of Bellary in respect  of the  properly in  question on  the ground  of Article 285 of the constitution, the Constitution, the Court withdrew the  suit under  Article 228 from the Bellary Court and has  itself disposed  it of.  It  has  passed  a  decree against Union  of India  as owner if the Southern Railway in favour- of  the Municipal Council  Bellary. Hence the former has preferred this appeal] to this Court.        The  District of  Bellary was a part or the erstwhile Madras state  under Section 4 of The Andhra State Act, 1953, Central Act  XXX of  1953 a  good  portion  of  the  Bellary District was added to the State of Mysore (row Karnataka) on and from October 1, 1953 whereupon it caused to be a part of the State  of Madras.  The  Bellary  Municipal  Council  was realizing certain  municipal taxes in respect of the Railway properties in  accordance with  Section  8!  of  the  Madras

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District Municipalities  Act, 1920. The property belonged to the erstwhile  Madras and Southern Mahratta Railway owned by a non-Government 3-549CI/78 576 company. Subsequently the said Railway was taken over by the Central Government.  But even  thereafter taxes  were  being realized by  the Municipal  Council in  accordance with  the Madras Act.        Previously by a notification dated the ]4th February, 1929 issued  under Section  135 of  the Indian Railways Act, 1890 the  liability of  the  Madras  and  Southern  Mahratta Railway- to  pay  the  taxes  to  Bellary  Municipality  was declared and  thus the Municipal Council was realizing taxes in accordance  with the  Madras District  Municipalities Act and the notification aforesaid. When the Railway, came to be owned  by   the  Central  Government,  section  154  oh  the Government of  India Act,  1935  created  a  difficulty  and especially in  relation to  the buildings  constructed after coming into  force of  the said Act. In absence of a Federal Law creating  the liability of the Government Railway to pay any Municipal  tax, no such tax could be realised. According by the  Railways (Local  Authorities Taxation) Act, 1941 was passed. [under  Section 4  of this  1941 Act, a notification dated  the  18th  June,  1946  Was  issued  by  the  Central Government  revoking   the  earlier   notification  of   the Government of  India in the Railway Department issued on the 14th February,  1929 in  respect of the Bellary Municipality and on  the same  date i.e.  the 18th  June,  l946  a  fresh notification under  section 3  of the  1941 Act was issue by the same Government declaring that the administration of the Madras and  Southern Mahratta Railway shall be liable to pay in aid  of thee  funds of the local authorities specified in column 1  of the Schedule annexed to the notification, which in cluded  Bellary Municipality.  Thus the  liability of the Railway to pay the Municipal tax was continued or created by the fresh  notification issue(l  under section  3(l) of  the 1941 Act.  At the  foot or this notification, an explanation was added  specifying the amounts of the property tax, water and drainage  tax. as  payable under  the Madras  Dist  rict Municipalities Act,  1920. The  Railway continued to pay the tax to the Bellary Municipality until 1.10.1953] when it was a part  of the  Madras State. Even thereafter the Madras law continued to  be applicable  lo the  Bellary area  which was transferred to  the Mysore  State  till  24.10.1955  as  per Section 53 of the Andhra State Act. On 24.10.1955 the Mysore Laws (Extension to Bellary and Amendment! Act. 1955 extended the operation  of the  Mysore State Municipalities Act, 1933 to the  District of  Bellaly thereby  entitling the  Bellary Munici pality  to law  certain municipal taxes in accordance with Section  64 of  to 1933  Act. We  may in  passing  just mention here  total  the  Mysore  Municipalities  Act,  1964 replaced the Mysore Municipality Act, 1933 on and from April 1, 1965.  But it  is of  no consequence  for the  purpose of deciding this case which is concerned with the periods prior to 1965. 577        lt would thus be seen that the Southern Railway which was the  A succcssor-in-interest  of  the  Government  owned Madras and  Southern Mahratta  Railway did  not dispute  its liability to  pay the municipal tax upto 24.10.1955 when the Bellary district continued to be governed by the Madras Act, 1920. Even  for sometime thereafter the liability to pay the tax was  not disputed.  But that is neither here nor there , as no  question of estoppel could or did arise in this case. These claim  in the  present suit,  however, was resisted on

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the ground  that the  Government owned  Railway property was not liable  to pay  any is of the local authority in view of the constitutional  bar created by clause (l) of Article 285 and it  is not saved by clause (2) thereof. The stand of the Municipal Council  was that  it was  covered by  the  saving clause (2) of Article 285.      The Civil Judge, Bellary had settled several issues for trial in the suit and the first issue framed by nirn, in our him, had  correctly highlighted  the main  dispute  in  this case. The said issue was in the following terms:- n               whether  on merger  of the  City of Bellary to      Mysore State,  right to  levy tax  on property  of  the      Union Territory  is barred  under Article  285 of  the.      Constitution of India ?"      In the High Court, however, it seems the main burden of the argument  advanced for  the Union  of India was that the tax which was levied before under the Madras Act of 1920 was not the  tax, which  was being claimed in the suit under the Mysore State  Municipalities Act,  1933 on  the extension of the provisions  of the  said Act  to Bellary Municipality on and from  24-10-1955. In further support of the said(l plea, a stand  was also  taken on  behalf of  the Union  that  the amount of  tax had  been varied  under the  Mysore  Act.  No argument seems  to have  been pointedly advanced in the High Court nor was its attention focussed on the question whether the Bellary  Municipal being  a part of the Mysore State was entitled to  continue to  claim a  tax which  it was levying while it  was in  the Madras  State. The High Court repelled the contention  of the Union of India as advanced before it, and in  our opinion rightly, with reference to clause (2) of Article 285.  But the  real  difficultly  of  the  Municipal Council in  seeking a  support of  its claim  under the said constitutional  provision   became  highlighted  during  the course of  the argument  of the  appeal in this Court. Apart from the  fact that this aspect of the matter was covered by issue no.  1 as  settled by the Bellary Court, the point was allowed to  be canvassed  and received our due consideration as  being  a  pure  and  simple  point  of  law  as  to  the interpretation of clause (2) 578 of Article  285. Mr.  K. S.  Ramamurthi appearing  for-  the Municipal Council, perhaps, being conscious of the fact that he will have considerable difficulty in bringing the case of the Municipal  Council  under  clause  (2;  of  Article  285 endeavoured to  bring it  under  the  main  clause  (1)  by. contending that  the said clause was not a bar in the way or imposing  and  levying  the  tax  in  question  because  the previous law  as enshrined  in the  Central Act  of 1941 was saved under  Article 372  of the Constitution. He urged this point in  the forefront.  We allow  cd him  to do so. In the alternative he  endeavoured to  bring his  case  even  under clause (2)  of Article  285. We  shall presently  show  that neither of  the two  contentions of  Mr. Ramamurthi  is well founded and fit to be accepted.      Article 285 reads as follows:-               "(l) The property of the Indian shall, save in      so for  as Parliament  may by law otherwise provide, be      exempt  from  all  taxes  imposed  by  a  State  or  by      authority within a State.                 (2)  Nothing  in  clause  (1)  shall,  until      Parliament  by  law  otherwise  provides,  prevent  any      authority within  a State  from levying  any tax on any      property of  the  Union  to  which  such  property  was      immediately   before    the   commencement    of   this      (Constitution liable  or treated  as  liable so long as

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    that tax continues to be levied in that State"        The  property of  the Union  is exempt from all taxes imposed by  a State  or by any authority within a State. But the Parliament  may by  law provide  otherwise. and then any tax on  the property  of the Union can be imposed and levied in accordance  with the  said law. But then an exception has been carved  out in  clause (2).  The exception is not meant for levying  any tax.  On such property by any State, but it is merely  for the  benefit of  any authority  including the local authority  like the  Municipal  Council  in  question. Clause (1)  cannot prevent  such authority  from levying any tax on  any property  of the  Union  is  such  property  was exigible to  such tax immediately before the commencement of the Constitution.  The local  authority., however,  can reap advantage of this exception only under two conditions namely (1) that  it is  "that tax"  which is  being continued to be levied and  no other;  (2) that the local authority in ’that State" is  claiming to continue the levy of the tax. another words the  nature, type  and the a property on which the tax was  being   levied  prior   to  the   commencement  of  the Constitution must  be the  same as  also the local authority must be  the   local authority of the same State to which it belonged before  he (commencement  of the.  Constitution. On fulfilment of these 579 two conditions it is authorized to levy the tax on the Union property A under clause (2). As in the case or clause (1) it lies within  the power  of the  Parliament  to  make  a  law withdrawing the  exemption of  the imposition  of the tax on the property  of the Union, so in the case of clause (’’) it is open  to the  Parliament to  enact a  law and  finish the right of the local authority within a State to claim any tax on any  property of  two Union,  a right  it  derived  under clause (2).  That is  to say, in both the cases the ultimate power lies with the Parliament.        The  argument of  Mr. Ramamurthi  with  reference  to Article 372  of the Constitution for talking out the case of the respondent  from tile  general  bar  of  clause  (1)  of Article 285  can be  briefly disposed of first. The Railways (Local Authorities  Taxation) Act, 1941 conti- nued in force as an  existing law  under Article  372. Clause  (1) thereof provides:-                 "372(1Notwithstanding  the  repeal  by  this      Constitution of  the enactments  referred to in article      395 but  subjects  to  the  other  provisions  of  this      Constitution, all  the law in force in the territory of      India  immediately  before  the  commencement  of  this      Constitution shall  continue  in  force  therein  until      altered  or   repealed  or   amended  by   a  competent      Legislature or other competent authority."      But the continuance in force of such an existing law is "subject to  the other  provisions of this Constitution." In other words  if the  said law contravenes or is repugnant to any other  provision of the Constitution then it has to give way  to   such  provision   of  the   Constitution  and  its continuance  in   fore  after   the  commencement   of   the Constitution is  affected to the extent it contravenes or is repugnant to  the said  provision. The  Act of 1941 creating the  liability   of  the   Railways  to  taxation  by  local authorities was passed by the then Central Legislature which was a  Federal Legislature  of India.  The  present  Central Legislature, namely,  the Parliament has not enacted any law after coming  into force  of  the  Constitution  making  any provision affecting  the-exemption of  the property  of  the Union from all taxes imposed by a State or by any authority.

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within a  State The  1941 Act  IS repugnant to clause (1) of Article 285.  It is  neither a  law made by Parliament nor a Law made  by the Central Legislature after the advent of the Constitution. In  either view  of the matter it is not a law covered by  the phrase  "save in so far as Parliament may by law otherwise  provide" occurring  in clause  (1) of Article 285.  There  is  an  additional  reason  for  rejecting  the argument of Mr. Ramamurthi in this regard. If the contention as made were to hold good it 580 will make  clause (2)  of Article  285 almost  nugatory. We. therefore? hold that the property in question is exempt from all taxes  claimed by  the Bellary  Municipal Council  under clause (1)  of Article 285 unless the claim can be supported and sustained within the four corners of clause (2)          We respectfully agree with the High Court that some variation in  the amounts  of the  tax  as  payable  by  the Railway  in   the  pre-constitution   and  post-constitution periods will  not rob  the tax  of being the same tex within the meaning  of the  expression  ’’that  tax"  occurring  in because (2)  of  Article  285.  In  support  of  this  view, reliance  was  rightly  placed  upon  the  decision  of  the Calcutta High Court in Covernor General of Indian in Council v. Corporation of Calcutta(1) and that of the Allahahad High Court in  Union of  India through General Manager E.l. Rly., v. Municipal  Board, Lucknow(2).  The decision of this Court in The  Town Municipal  Committee,  Amravati  v.  Ramchandra Vasudev Chimote  and another(3) was rightly distinguished. A question  for  Consideration  before  this  Court  was  with reference to  Article 277  of the Constitution. The Amravati Municipality claimed  to impose  and levy new terminal taxes on silver  jewellery, gold  and gold  jewellery and precious stones which  it Was  not levying  in the  pre  constitution days. Article  277 is a saving provision empowering, besides other, any  Municipality in  a State to continue to levy the tax in the post-constitution era under certain circumstances until provision  to the  contrary was  made by Parliament by law. It  was held  by this  Court that  Article 277  was not intended to  confer an unlimited legislative power to impose what in  effect were  new taxes  though of the same  type or nature as existed before the Constitution.        In our opinion the High Court is also right in saying that the mere fact that the tax was being levied and claimed previously under the Madras Act of 1920 and now the claim is founded upon  the Mysore  Act of 1933 will not make it a tax different from  "that tax"  within the meaning of clause (2? of Article  285. As  rightly pointed  out by  Mr. Ramamurthi taking aid  from section SS of the Andhra State Act, 1953 or even without  it the  reference to  the Madras District Muni cipalities Act,  1920 in  the explanation  appended  to  the notification dated  the 18th  June, 1945  issued under  sub- section (1) of Section 3 of the Central Act of 1941 can by a rule of  construction be read as referring to the Mysore Act of 1933 in the changed circumstances of the case.      (1) A. 1. R. 1948 Calcutta. 116      (2) (2) A. 1. R. 1957 Allahabad, 452.      (3) [1964] 6 S. C. R. 947=A. l. R. 1964 S.C. I116. 581       But that is not all. The real difficulty in the way of the Municipal  Council is  presented by the expression "that State" occurring  at the  end of  clause (2) of Article 285. The plain  and simple  meaning which must be culled out from the said  expression in the context of the other phraseology in  clause  (2)  is  that  the  local  authority  can  claim protection under  clause (2)  if it  is a local authority in

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the same  State in  which it  was before  the advent  of the Constitution. There  does not  seem to  be any  ambiguity in this matter  and there  is, therefore,  no escape  from  the position that  the Pellagra Municipal Council in the city of Bellary which  was a  local authority  within the  State  of Madras cannot  take the  advantage of  clause (2)  as at the time when it was making the claim for realization of the tax it was  a part  of the  Miser state. It is neither necessary nor advisable  for us  to speculate  or hazard  a surmise to find out  a reason  for making  this distinction between the right  of  a  local  authority  continuing  to  be  a  local authority in  the same state and being part of the different States in  the pre-Constitution  and post-Constitution eras. As we  have said  above the ultimate authority lies with the Parliament either  under klatsch  (1) or  clause (2).  If it thinks that the distinction so made was without a difference it can  by enacting  a  suitable  law  empower  the  Bellary Municipal   Council    to   claim    the   municipal   taxes retrospectively or  prospectively from the Railway concerned in respect of its property situated within the limits of the Municipal Council.  The amount  of tax  which the  Municipal Council was  getting from  the Railway  in respect  of  such property was  quite considerable and was, perhaps, necessary for the  funds of  the Municipality. Such considerations are foreign and  not germane  for our  purposes for deciding the constitutional  point   at   issue.   We   are   regretfully constrained to  decide it against the Municipal Council on a plain reading  of the  constitutional provision engrafted in Article 285(2).  We accordingly  hold that  the respondent’s suit cannot be decreed against the appellant.       ln the result the appeal succeeds and the judgment and decree of  the High  Court are set aside. But in the special circumstances if  the case  we direct the parties to pay and bear their own costs through- N.V.K.                                       Appeal allowed. 582